Thursday, June 13, 2024

IndiGo’s Record Airbus Order Puts Financial & Infrastructure Pressures Under Spotlight

By Aritra Banerjee

The opening day of the Paris Air Show was dominated by the news of IndiGo’s significant order of 500 A320neo family aircraft from Airbus, representing a seismic shift in the aviation sector. The size of the order raised eyebrows across the industry, and it places financial and infrastructural questions into sharp focus.

IndiGo’s robust financial performance may have contributed to the decision, with the company’s net sales increasing year-on-year by 67.9%, reaching INR 1,346.8 crore, despite a quarter-on-quarter decline of 9.8%. The company’s shares closed at INR 2,236 with a 52-week high and low range of INR 2,304.75 – INR 1,511.75​1​.

The colossal order, scheduled for delivery from 2030 to 2035, could potentially see the Indian budget airline take up to 11% of Airbus’ annual production, assuming that Airbus does not drastically increase its production rate. This order, however, raises questions about the capacity of India’s infrastructure to handle such an influx of aircraft, with IndiGo’s additional 1,000 aircraft, another 470 at Air India, and more expected across other low-cost carriers such as Akasa.

The successful execution of these orders hinges on India’s ability to significantly invest in airport infrastructure by expanding existing airports and building new ones. There is a current plan to add 80 fields in the next two years to accommodate the anticipated growth. For Air India, more so than for IndiGo, expansion of Mumbai and Delhi airports is critical. The flag carrier also aspires to add a third hub in South India.

Another aspect to consider in this mammoth deal is the pressure on Airbus to allocate more supplier work to India as the country’s carriers increase their orders. However, Airbus CEO Guillaume Faury made it clear at the Paris Air Show that an Indian final assembly line is not in the cards for the time being due to the complexity of the A320neo production system and the fact that Airbus already employs a significant workforce in India.

The order also brings uncertainties around the specific aircraft models and engines IndiGo will choose, given the airline’s past experiences with Pratt & Whitney PW1100G durability issues. If these issues persist, CFM International’s Leap 1A could be the preferred choice, despite some less severe problems reported on the CFM-powered fleet.

As previously rumoured, the sizeable order will undoubtedly make IndiGo a major long-haul player, even without a fleet of Boeing 787s. However, India’s long-haul ambitions require more liberal bilateral air services agreements, as was discussed in a recent summit between the country and the European Commission.

This monumental order brings more questions than answers, and only time will reveal the full impact on IndiGo, Airbus, and the wider aviation industry.

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